MacroGenics, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing is an annual report, not a standalone fourth-quarter report. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based treatments; it had no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Total revenue | $91.9 million | $100.9 million | Down 9% |
| Research and development expense | $122.1 million | $98.3 million | Up 24% |
| General and administrative expense | $29.8 million | $22.8 million | Up 31% |
| Operating loss | $60.0 million | $20.2 million | Loss widened |
| Net loss | $58.5 million | $20.1 million | Loss widened |
| Net loss per share | $1.69 | $0.63 | Loss per share increased |
| Operating cash used | $43.7 million | $13.7 million | Use increased |
| Cash, cash equivalents and marketable securities | $285.0 million | $339.0 million | Down $54.1 million |
- FY2016 revenue comprised $86.6 million from collaborations and $5.3 million from government agreements. Collaboration revenue was concentrated: Janssen accounted for 85% of total revenue.
- The year’s revenue included a $75.0 million upfront payment for the Janssen MGD015 license. Quarterly revenue was highly uneven: Q2 revenue was $80.7 million and net income was $40.5 million, while the other three quarters reported net losses.
- Cash used in investing activities was $70.2 million, including $11.4 million in property and equipment purchases; financing provided $1.9 million. The large investing cash outflow primarily reflected purchases of marketable securities as well as facility investment.
- At year-end, total liabilities were $42.5 million and stockholders’ equity was $268.8 million. The balance sheet shows no interest-bearing borrowings; liabilities included deferred revenue, accrued expenses, deferred rent and lease exit obligations.
- Working capital was approximately $256.6 million, based on current assets of $283.9 million less current liabilities of $27.3 million. No product gross margin is reported because there were no product sales.
Business progress and changes versus prior year
- Margetuximab, the lead candidate, was in the Phase 3 SOPHIA trial for HER2-positive metastatic breast cancer. MacroGenics also studied it with an anti-PD-1 antibody in a Phase 1b/2 gastric/gastroesophageal cancer trial. An exploratory study in lower-HER2-expression patients showed insufficient activity to justify further study in that population.
- Clinical programs also included enoblituzumab, flotetuzumab, MGD007, MGD009 and MGA012; the company initiated Phase 1 testing of MGA012 in 2016. MGD010 had completed Phase 1a testing. Several programs were partnered, while others remained company-led or in earlier development.
- Revenue decreased from FY2015 as revenue recognition under Boehringer and Takeda agreements declined; this was partly offset by the Janssen MGD015 upfront payment and increased government-contract revenue. R&D spending increased with expanded clinical and preclinical work, including immune-checkpoint programs, combination trials and MGA012 testing.
- FY2016 R&D spending on margetuximab decreased to $35.4 million from $41.2 million, while spending increased on enoblituzumab ($18.0 million versus $11.9 million) and MGA012 ($9.3 million versus $3.6 million).
Outlook, risks and unusual items
- Management estimated that year-end cash, cash equivalents and marketable securities, together with anticipated collaboration payments, would fund operations through late 2018, assuming programs and collaborations progress as planned. This is not a guarantee; the company expected expenses and losses to continue rising.
- No formal revenue, earnings or margin guidance was provided. Future funding needs depend on clinical results, trial costs, regulatory timing, manufacturing investment and collaboration payments; additional capital may be required and could dilute shareholders or require rights to be surrendered.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, safety issues, competition, reimbursement and pricing pressure, dependence on collaborators, manufacturing scale-up and supply risks, and protection or infringement of intellectual property. The filing specifically notes third-party Fc-engineering patents that could affect margetuximab or enoblituzumab if the company’s position is not upheld.
- Manufacturing expansion and commercial readiness require significant investment. The company had no U.S.-approved products and had not established sales, marketing or distribution infrastructure. It planned to rely on contract manufacturers for supplemental clinical and potential commercial supply.
- FY2016 included a $1.3 million reduction in R&D expense from expected sublease receipts related to the South San Francisco lease exit liability. A contingent $5.0 million payment to former Raven stockholders may be triggered by initiation of a qualifying Phase 2 trial by July 15, 2018; further payments depend on specified sales levels. These amounts were not included in contractual obligations because timing and achievement were uncertain.
- Accumulated deficit was $292.7 million. Federal and state net operating loss carryforwards were $215.4 million and research and development tax credit carryforwards were $32.5 million, but utilization may be limited by ownership-change rules; deferred tax assets were fully offset by a valuation allowance.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of year-end. No material legal proceedings were reported.
Most important facts for investors to verify
- Latest SOPHIA Phase 3 status, results and timing, along with the clinical and safety evidence supporting margetuximab.
- Whether cash burn and operating costs remain consistent with the stated late-2018 runway, particularly if trials, manufacturing expansion or collaboration receipts change.
- Revenue concentration and the timing and conditions of future Janssen, Servier and other collaboration milestones, options and royalties.
- Manufacturing capacity, external supplier readiness and costs required for late-stage trials and any potential launch.
- Potential effects of patent disputes, tax-attribute limitations and contingent Raven obligations on future cash requirements.